(Bloomberg) -- Puerto Rico's financial oversight board said it will sign off on island lawmakers' proposed changes to pensions if officials approve a plan to sell new bonds, a move that could enable the commonwealth to end its record bankruptcy.
The panel will agree to raising its proposed $1,500 minimum pension payment to $2,000 and allowing the commonwealth to make up for any of the proposed pension reductions by allocating revenues to retirees in future budgets, the board said in a statement Monday. The board included an 8.5% cut to some pensions as part of Puerto Rico's plan to reduce $22 billion of debt.
“We are almost there,” David Skeel, the board's chair, said in Monday's statement. “Let's get to the finish line with the legislation necessary to restructure the debt so we can go into confirmation hearings in November with all of the necessary pieces in place to lift the burden of bankruptcy from the people of Puerto Rico.”
The agreement is contingent on Puerto Rico's legislature approving and Governor Pedro Pierluisi signing off on new restructuring bonds to replace general obligations and debt guaranteed by the commonwealth. U.S. District Court Judge Laura Taylor Swain may be more likely to approve Puerto Rico's debt restructuring proposal if lawmakers agree to the plan to sell the new bonds and authorize pension cuts.
Pierluisi has said he doesn't support any pension reductions and is prepared to make his case before Swain.
Another condition of the board is that Puerto Rico cannot redirect money to restore pension cuts unless the federal government allocates more Medicaid funding to the commonwealth to generate enough budget savings to cover that expense.
Puerto Rico owes an estimated $55 billion to current and future retirees. The system is broke, with nearly all payments to retirees coming from the island's operating budget.
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